U.S. Securities and Exchange Commission


Washington, D.C. 20549


FORM 10-Q





x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the Quarterly Period Ended June 30, 2011





o     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the Transition Period From ____to _____





000-53272


(Commission File Number)





DÉCOR PRODUCTS INTERNATIONAL, INC.


(Exact name of small business issuer as specified in its charter)





Nevada
20-8211061(State or other jurisdiction of
(IRS Employer Identification No.)incorporation or organization)





No. 6 Economic Zone, Wushaliwu, Chang’an Town


Dongguan, Guangdong Province, China


(Address of principal executive offices)





(86) 769-85533948


(Issuer’s telephone number, including area code)





Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer o

Accelerated filer oNon-accelerated filer o

Smaller reporting company x(Do not check if smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [x]





Number of shares of common stock outstanding as of June 30, 2011:   6,866,122















TABLE OF CONTENTS







Page No.PART I. FINANCIAL INFORMATION
3ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010
3Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months ended June 30, 2011 and 2010
4Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2011 and 2010
5Condensed Consolidated Statement of Stockholders’ Equity for the Six Months ended June 30, 2011
6Notes to Condensed Consolidated Financial Statements
5ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
25ITEM 4. CONTROLS AND PROCEDURES
25PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
26ITEM 1A. RISK FACTORS
26ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
26ITEM 3. DEFAULTS UPON SENIOR SECURITIES
26ITEM 4. REMOVED AND RESERVED
26ITEM 5. OTHER INFORMATION
26ITEM 6. EXHIBITS
26SIGNATURES
27








2




PART I. FINANCIAL INFORMATION
  ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





DÉCOR PRODUCTS INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 AS OF JUNE 30, 2011 AND DECEMBER 31, 2010
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 
 June 30, 2011


December 31, 2010(Unaudited)


(Audited)ASSETSCurrent assets:Cash and cash equivalents

$
746,543


$
972,888Restricted cash


773,515



-Accounts receivable, trade


15,366,016



13,558,147Inventories


413,458



342,015Advances to suppliers


386,757



865,303Deposits and prepayments


13,054



12,762Total current assets


17,699,343



15,751,115Non-current assets:Plant and equipment, net


14,701,912



14,150,249Construction in progress


8,040,292



6,172,668TOTAL ASSETS

$
40,441,547


$
36,074,032LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable, trade

$
2,070,618


$
369,832Short-term bank borrowings


1,547,029



1,512,447Current portion of long-term bank borrowings


82,536



71,673Convertible notes


1,593,367



1,772,254Promissory notes


405,000



405,000Amount due to a related party


107,819



111,599Income tax payable


377,633



382,620Accrued liabilities and other payable


1,394,511



1,182,614Total current liabilities


7,578,513



5,808,039Long-term liabilities:Long-term bank borrowings


1,000,385



1,058,713Total liabilities


8,578,898



6,866,752Commitments and contingenciesStockholders’ equity:Preferred stock, $0.001 par value; 1,666,667 shares authorized; 0 shares issued and outstanding, respectively


-



-Common stock, $0.001 par value; 33,333,333 shares authorized; 6,866,122 shares issued and outstanding, respectively


6,866



6,866Additional paid-in capital


2,126,130



2,126,130Statutory reserve


1,393,213



1,393,213Accumulated other comprehensive income


4,772,239



3,833,377Retained earnings


23,564,201



21,847,694Total stockholders’ equity


31,862,649



29,207,280TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
40,441,547


$
36,074,032
 
 
 See accompanying notes to condensed consolidated financial statements.
  3
  DÉCOR PRODUCTS INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
 
 Three months ended June 30,


Six months ended June 30,2011


2010


2011


2010Revenues, net

$
5,806,130


$
7,611,445


$
10,844,058


$
12,880,324Cost of revenue(inclusive of depreciation)


(3,797,506
)


(4,442,311
)


(7,303,283
)


(7,623,951
)Gross profit


2,008,624



3,169,134



3,540,775



5,256,373Operating expenses:Sales and marketing


(228,961
)


(321,815
)


(524,758
)


(606,029
)General and administrative


(223,065
)


(267,481
)


(470,559
)


(544,321
)Total operating expenses


(452,026
)


(589,296
)


(995,317
)


(1,150,350
)Income from operations


1,556,598



2,579,838



2,545,458



4,106,023Other income (expense):Interest income


792



734



1,106



1,405Interest expense


(116,258
)


(330,417
)


(198,285
)


(657,801
)Income before income taxes


1,441,132



2,250,155



2,348,279



3,449,627Income tax expense


(375,108
)


(670,864
)


(631,772
)


(1,063,755
)NET INCOME


1,066,024



1,579,291


$
1,716,507


$
2,385,872Other comprehensive income:- Foreign currency translation gain


685,095



7,444



938,862



156,008COMPREHENSIVE INCOME

$
1,751,119


$
1,586,735


$
2,655,369


$
2,541,880Net income per share – Basic

$
0.16


$
0.23


$
0.25


$
0.35Net income per share – Diluted

$
0.13


$
0.20


$
0.22


$
0.30Weighted average common share outstanding – Basic


6,866,122



6,866,122



6,866,122



6,866,122Weighted average common share outstanding – Diluted


7,914,455



7,914,455



7,914,455



7,914,455
 
 
 See accompanying notes to condensed consolidated financial statements.
  4
  DÉCOR PRODUCTS INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
 (Currency expressed in United States Dollars (“US$”))
 (Unaudited)
 
 Six months ended June 30,2011


2010Cash flows from operating activities:Net income

$
1,716,507


$
2,385,872Adjustments to reconcile net income to net cash provided by operating activities:Depreciation


1,357,585



625,493Loss on disposal of plant and equipment


2,227



-Interest expenses, non-cash


-



497,864Changes in operating assets and liabilities:Accounts receivable, trade


(1,478,600
)


(259,270
)Advances to suppliers


491,923



158,646Deposits and prepayments


-



138,493Inventories


(62,806
)


(578,831
)Accounts payable, trade


1,670,569



364,749Income tax payable


(13,559
)


150,203Accrued liabilities and other payable


190,010



402,415Net cash provided by operating activities


3,873,856



3,885,634Cash flows from investing activities:Payments on plant and equipment


(809,209
)


(1,150,512
)Payments on construction in progress


(2,480,071
)


(2,367,731
)Net cash used in investing activities


(3,289,280
)


(3,518,243
)Cash flows from financing activities:Change in restricted cash


(763,569
)


-Advance from (repayment to) a related party


189,880



(314,906
)Payment on convertible notes


(186,517
)


-Proceeds from long-term bank borrowings


-



1,024,179Payments on short-term bank borrowing


-



(570,614
)Payments on long-term bank borrowings


(72,368
)


(716,647
)Net cash used in financing activities


(832,574
)


(577,988
)Effect of exchange rate changes on cash and cash equivalents


21,653



2,467NET CHANGE IN CASH AND CASH EQUIVALENTS


(226,345
)


(208,130
)BEGINNING OF PERIOD


972,888



777,332END OF PERIOD

$
746,543


$
(569,202
)SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for income taxes

$
645,331


$
913,552Cash paid for interest

$
140,418


$
159,937
 
 
 
 
 See accompanying notes to condensed consolidated financial statements.
  5
  
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 FOR THE SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
 
 Common stock


Additional

paid-in


Statutory


Accumulated

other comprehensive


Retained


Total

stockholders’No. of shares


Amount


capital


reserve


income


earnings


equityBalance as of January 1, 2011


6,866,122


$
6,866


$
2,126,130


$
1,393,213


$
3,833,377


$
21,847,694


$
29,207,280Net income for the period


-



-



-



-



-



1,716,507



1,716,507Foreign currency translation adjustment


-



-



-



-



938,862



-



938,862Balance as of June 30, 2011


6,866,122


$
6,866


$
2,126,130


$
1,393,213


$
4,772,239


$
23,564,201


$
31,862,649
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See accompanying notes to condensed consolidated financial statements.
  6
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 NOTE 1 - BASIS OF PRESENTATION
 
 The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
 
 In the opinion of management, the consolidated balance sheet as of December 31, 2010 which has been derived from audited financial statements and these unaudited condensed financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended June 30, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2011 or for any future period.
 
 These unaudited condensed consolidated financial statements and notes thereto should be read inconjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
 NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND
 
 Décor Products International, Inc. (“DCRD” or the “Company”) was organized under the laws of the State of Nevada on January 11, 2007 as Murals by Maurice, Inc. On July 1, 2009, the Company changed to its current name.
 
 The Company, through its subsidiaries, mainly engaged in the manufacture and sales of furniture decorative paper and related products in the People’s Republic of China (the “PRC”). All the customers are located in the PRC.
 
 The Company and its subsidiaries are hereinafter referred to as (the "Company").
 
 
 NOTE 3 - GOING CONCERN UNCERTAINTIES
 
 The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
 
 As of June 30, 2011, the Company defaulted on the repayment of convertible notes and promissory notes with an aggregate amount of $1,998,367, which became immediately due and payable. The continuation of the Company as a going concern through June 30, 2012 is dependent upon the continuing financial support from its stockholders or negotiation of repayment term. Management believes the existing shareholders will provide the additional cash to meet the Company’s obligations as they become due.
 
 These factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
 
  7
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.
 
 l
Use of estimates
 
 In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amount of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.
 
 l
Basis of consolidation
 
 The condensed consolidated financial statements include the accounts of DCRD and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
 
 l
Cash and cash equivalents
 
 Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
 
 l
Restricted cash
 
 The Company maintains certain amount of cash balance held by a financial institution in the PRC as collateral for banking facilities.
 
 l
Accounts receivable
 
 Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 90 to 180 days. Credit is extended based on evaluation of a customer's financial condition. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 180 days and over a specified amount are reviewed individually for collectibility. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when it is considered necessary. When receivable balances are determined to be uncollectible, these balances are written off. The Company does not have any off-balance-sheet credit exposure related to its customers.
 
  8
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  As of June 30, 2011 and December 31, 2010, the Company did not record an allowance for doubtful accounts.
 
 l
Inventories
 
 Inventories consist of raw papers, painting materials and components used in the manufacture of the Company’s products and the related parts and supplies. Inventories are stated at the lower of cost or net realizable value, with cost being determined on a weighted average basis. Costs include purchased cost of papers and painting inks, direct labor and manufacturing overhead costs. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand.
 
 As of June 30, 2011 and December 31, 2010, there was no allowance for obsolete inventories, nor have there been any write-offs.
 
 l
Advances to suppliers
 
 The Company makes advances to certain vendors for purchase of its inventory items or material. The advances to suppliers are interest free and unsecured. Advances to suppliers are recorded when payment is made by the Company and relieved against inventory when goods are received. All inventory items or raw materials relating to these advances are subsequently made delivery to the Company.
 
 l
Plant and equipment
 
 Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
 
 Expected useful lives

Residual valuePlant and machinery
3-10 years

3%Leasehold improvement
Shorter of 10 years or lease term

0%Motor vehicles
3-5 years

3%Office equipment
3-5 years

3%
 
 Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
 
 Depreciation expense for the three months ended June 30, 2011 and 2010 were $676,219 and $331,332, which included $645,595 and $369,494 in cost of revenue, respectively.
 
 Depreciation expense for the six months ended June 30, 2011 and 2010 were $1,357,585 and $625,493, which included $1,324,764 and $619,816 in cost of revenue, respectively.
 
 l
Construction in progress
 
 Construction in progress is stated at cost and represents the cost of acquiring contracts to build the now printing lines and prepayments paid to equipment vendors or builders during the construction of the new manufacturing facility (until it is substantially complete and ready for its intended use). No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into operational use. No capitalized interest was incurred during the period of construction. The Company is anticipating a new manufacturing facility for the production of laminated boards, in an area of 100,000 square feet, adjacent to the existing facility, which is scheduled to be completed in the fourth quarter of 2011.
  9
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 l
Valuation of long-lived assets
 
 In accordance with the provisions ofAccounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the periods presented.
 
 l
Revenue recognition
 
 In accordance with ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.
 
 The Company derives revenues from the sales of furniture decorative paper and related products. The Company recognizes its revenues net of value-added taxes ("VAT"). The Company is subject to VAT which is levied on the majority of the products at the standard rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales. The Company experienced no material product returns and recorded no reserve for sales returns for the three and six months endedJune 30, 2011 and 2010.
 
 Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.
 
 l
Comprehensive income
 
 ASC Topic 220,“Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
 
 l
Income taxes
 
 Income taxes are determined in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
  10
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
 
 For the three and six months ended June 30, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2011, the Company did not have any significant unrecognized uncertain tax positions.
 
 The Company conducts major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.
 
 l
Net income per share
 
 The Company calculates net income per share in accordance with ASC Topic 260,“Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion will be anti-dilutive.
 
 As of June 30, 2011, the Company has 1,048,333 shares of outstanding warrants at the weighted-average exercise price of $3.15. There was no movement during the six months ended June 30, 2011.
 
 l
Foreign currencies translation
 
 Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
 
 The reporting currency of the Company is the United States Dollars ("US$"). The Company's subsidiary in the PRC maintain its books and records in its local currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which the entity operates.
 
 In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance withASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
  11
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective period:
 June 30, 2011


June 30, 2010Period-end RMB:US$1 exchange rate


6.4640



6.8086Period average RMB:US$1 exchange rate


6.5482



6.8348
 
 l
Related parties
 
 Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
 
 l
Segment reporting
 
 ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in one reportable operating segment in the PRC.
 
 l
Fair value of financial instruments
 
 The carrying value of the Company’s financial instruments: cash, accounts receivable, advances to suppliers, deposits and prepayments, accounts payable, income tax payable, amount due to a related party, accrued liabilities and other payables approximate at their fair values because of the short-term nature of these financial instruments.
 
 Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of short-term and long-term bank borrowings approximate at their carrying amounts. The fair value of convertible notes and promissory notes approximate at their carrying amounts.
 
 The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
 
 ·
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
 
 ·
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and; and
 
 ·
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
 
  12
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 l
Recent accounting pronouncements
 
 The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
 
 In May 2011, the Financial Accounting Standard Board (“FASB”) issued ASU 2011-04, which is an update to Topic 820, “Fair Value Measurement”. This update establishes common requirements for measuring fair value and related disclosures in accordance with accounting principles generally accepted in the United Sates and international financial reporting standards. This amendment did not require additional fair value measurements. ASU 2011-04 is effective for all interim and annual reporting periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.
 
 In June 2011, the FASB issued ASU 2011-05, which is an update to Topic 220, “Comprehensive Income”. This update eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity, requires consecutive presentation of the statement of net income and other comprehensive income and requires reclassification adjustments from other comprehensive income to net income to be shown on the financial statements. ASU 2011-05 is effective for all interim and annual reporting periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.
 
 
 NOTE 5 – CONVERTIBLE NOTES
 
 At June 30, 2011 and December 31, 2010, the carrying value of the convertible notes payable was $1,593,367 and $1,772,254, respectively and the debt discount was fully amortized.
 
 During the six months ended June 30, 2011, the Company made the partial repayment of $186,517 to Mr. Zhuang. The unpaid portion of convertible notes was matured and became overdue. In the event that the Company cannot pay the convertible note when due, an event of default would occur. The default interest shall be subject to 16%, if the Company has failed to make payments of interest and principal on the maturity date. Ms. Shi and Mr. Zhuang shall have rights to keep the proceeds from the sales of the pledge and the Shares to the extent of the unpaid interest and principal of the convertible notes. Ms. Shi and Mr. Zhuang shall have recourse for the outstanding balance.
 
 As of June 30, 2011, the convertible notes became immediately due and the Company has been in negotiations with the holders of the convertible notes, but has not yet reached an agreement as to repayment schedule.
 
 
 NOTE 6 – CONVERTIBLE PROMISSORY NOTES
 
 As of June 30, 2011, the promissory notes became immediately due and the Company has been in negotiations with the holders of the promissory notes, but has not yet reached an agreement as to repayment schedule.
  13
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 In accordance with the terms and conditions in promissory notes, if the Company defaults in the payment of principal or interest due on the Promissory Notes, the holder of Promissory Notes (the “holder”) shall be entitled to receive and the Company agreed to pay all reasonable costs of collection incurred by holder, including, without limitation, reasonable attorney’s fees for consultation and suit. If any payment due is not made and remains unpaid for ten (10) days, it is in default hereof. Any such payment in default shall bear interest at 18% per annum. Should any payment not be made when due, there shall also be a late charge equal to 5% of the amount of the installment of principal or interest which is paid after the due date. In the event of default hereunder, the entire unpaid balance hereof shall, at the option of the holder, become due and payable upon demand. All costs and fees (including reasonable fees and disbursements of legal counsel) incurred by the holder as the result of any default by anyone liable hereunder or as the result of any collection effort by the holder shall also be due and owing to the holder. Failure to exercise any right shall not be deemed a waiver of the right to exercise the same at any subsequent date, or event.
 
 NOTE 7 - AMOUNT DUE TO A RELATED PARTY
 
 As of June 30, 2011 and December 31, 2010, amount due to a related party represented temporary advances made by Mr. Liu, the director of the Company, which was unsecured, interest-free with no fixed repayment term.
 
 
 NOTE 8 - ACCRUED LIABILITIES AND OTHER PAYABLE
 
 June 30, 2011


December 31, 2010VAT payable

$
198,982


$
77,782Accrued payroll and benefit costs


651,002



541,454Accrued operating expenses


521,922



554,613Other payable


22,605



8,765$
1,394,511


$
1,182,614
 
 
 NOTE 9  - LONG-TERM BANK BORROWINGS
 
 Long-term bank borrowings consisted of the following:
 
 June 30, 2011


December 31, 2010Bank loans, payable to financial institutions in the PRC:Equivalent to RMB0 (2010: RMB297,197) with effective interest rate ranging from 7.02% to 9.83% per annum, payable monthly, due January 16, 2011, collateralized by certain plant and machinery

$
-


$
44,950Equivalent to RMB0 (2010: RMB176,685) with effective interest rate ranging from 7.02% to 9.83% per annum, payable monthly, due January 17, 2011, collateralized by certain plant and machinery


-



26,723Equivalent to RMB7,000,000 with effective interest rate at 5.85% per annum, payable monthly, due March 8, 2015, guaranteed and secured by the director, Mr. Liu and restricted cash


1,082,921



1,058,713Total long-term bank borrowings


1,082,921



1,130,386Less: current portion


(82,536
)


(71,673
)Total long-term bank borrowings

$
1,000,385


$
1,058,713
 
  14
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 As of June 30, 2011, the minimum future payments of the aggregate bank borrowings in the next five years are as follows:
 
 Year ending June 30:2012

$
82,5362013


343,6332014


366,2822015


290,470Total borrowings

$
1,082,921
 
 
 NOTE 10 – INCOME TAXES
 
 For thesix months endedJune 30, 2011 and 2010, the local (United States) and foreign components of income before income taxes were comprised of the following:
 
 Six months ended June 30,2011


2010Tax jurisdictions from:- Local

$
(18,426
)

$
(516,864
)- Foreign


2,366,705



3,966,491Income before income taxes

$
2,348,279


$
3,449,627
 
 The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has subsidiaries that operate in various countries: United States, BVI and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:
 
 United States of America
 
 The Company is registered in the State of Nevada and is subject to the tax laws of the United States of America.
 
 British Virgin Island
 
 Under the current BVI law, Wide Broad is not subject to tax on its income or profits. For the six months ended June 30, 2011 and 2010, Wide Broad suffered from an operating loss of $151,047 and $171,856, respectively.
  15
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 The PRC
 
 The Company generated its income from a subsidiary operating in the PRC for the six months ended June 30, 2011 and 2010, which is subject to the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”) at a unified income tax rate of 25%.
 
 A reconciliation of income tax rate to the effective income tax rate for the six months ended June 30, 2011 and 2010 is as follows:
 
 Six months ended June 30,2011


2010Income before income taxes

$
2,517,752


$
4,138,347Statutory income tax rate


25
%


25
%Income tax expense at statutory tax rate


629,438



1,034,587Tax effect of non-taxable items


2,334



29,168Income tax expense

$
631,772


$
1,063,755
 
 No provision for deferred tax assets or liabilities has been made, since the Company has no material temporary difference between the tax bases of assets and liabilities and their carrying amounts.
 
 
 NOTE 11 - CONCENTRATIONS OF RISK
 
 The Company is exposed to the following concentrations of risk:
 
 (a)         Major customers
 
 For the three and six months endedJune 30, 2011 and 2010, there was no single customer who accounted for 10% or more of the Company’s revenues.
 
 (b)         Major vendors
 
 For the three and sixmonths ended June 30, 2011, the vendor who accounted for 10% or more of the Company’s purchases and its outstanding balance at period-end date, are presented as follows:
 
 Three months ended June 30, 2011


June 30, 2011Vendor

Purchases


Percentage of

purchases


Accounts

payable, tradeVendor A

$
675,758



27%


$
163,047Vendor B


376,469



15%



-Vendor C


367,001



15%



-Vendor D


360,395



14%



93,506Total:
$
1,779,623



71%


$
256,553
 
  16
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 Six months ended June 30, 2011


June 30, 2011Vendor

Purchases


Percentage

of purchases


Accounts

payable, tradeVendor A

$
2,206,713



40%


$
163,047Vendor B


751,058



14%



-Vendor C


592,865



11%



-Vendor D


607,788



11%



93,506Vendor E


555,579



10%



-Total:
$
4,714,003



86%


$
256,553
 
 For the three and sixmonths ended June 30, 2010, the vendor who accounted for 10% or more of the Company’s purchases and its outstanding balance at period-end date, are presented as follows:
 
 Three months ended June 30, 2010


June 30, 2010Vendor

Purchases


Percentage

of purchases


Accounts

payable, tradeVendor C

$
930,245



23%


$
-Vendor D


634,481



16%



-Vendor F


518,203



13%



294,746Vendor G


395,369



10%



-Total:
$
2,478,298



62%


$
294,746
 
 Six months ended June 30, 2010


June 30, 2010Vendor

Purchases


Percentage

of purchases


Accounts

payable, tradeVendor C

$
1,499,754



22%


$
-Vendor D


1,090,414



16%



-Vendor F


805,382



12%



294,746Tota;:
$
3,395,550



50%


$
294,746
 
 (c)         Credit risk
 
 Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its accounts and retention receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. Credit is extended based on evaluation of a customer's financial condition. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
  17
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 (d)         Exchange rate risk
 
 The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
 
 (e)         Interest rate risk
 
 As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.
 
 The Company’s interest-rate risk arises from bank borrowings, convertible notes and promissory notes. Borrowings issued at variable rates expose the Company to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Company to fair value interest-rate risk. Company policy is to maintain approximately all of its borrowings in fixed rate instruments. At the period-end, the bank borrowings were both at fixed and floating rates.
 
 (f)         Economic and political risks
 
 The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
 
 The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.
 
 
 NOTE 12 - COMMITMENTS AND CONTINGENCIES
 
 (a)
Operating lease commitments
 
 The Company’s subsidiary in the PRC is committed under several non-cancelable operating leases of office premises and manufacturing facility with a term of 10 years with fixed monthly rentals, due through December 31, 2020. Total rent expense for the six months ended June 30, 2011 and 2010was $83,308 and $105,728, respectively.
 
 As of June 30, 2011, the Company has future minimum rental payments due under non-cancelable operating leases in the next five years and thereafter, as follows:
  18
 DÉCOR PRODUCTS INTERNATIONAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
 (Currency expressed in United States Dollars (“US$”), except for number of shares)
 (Unaudited)
  
 Year ending June 30:2012

$
222,7722013


222,7722014


236,6962015


250,6192016


250,619Thereafter


723,082Total

$
1,906,560
 
 (b) Capital commitment
 
 The Company is committed under a number of agreements with an independent contractors or suppliers in relation to the construction of the new manufacturing facility for the production of laminated boards. The construction is expected to be completed in the fourth quarter of 2011. As of June 30, 2011, the Company has the aggregate contingent payments of approximately $0.2 million to the third party contractors and equipment vendors in the next twelve months.
 
 (c) Guarantees
 
 As of June 30, 2011, the Company, through its subsidiary is contingently liable as guarantor with respect to the maximum exposure of $4,537,342 (equivalent to RMB30,000,000) to a unrelated third party, Dongguan XiaoYuanDing Technology Co., Ltd (“DXT”) on a cross-guarantee basis. The term of these guarantees are commenced for 2 years, expiry in October 2012. At any time from the date of guarantees, should DXT fail to make its due debt payments, the Company will be obligated to perform under the guarantees by primarily making the required payments, including late fees and penalties.
 
 In accordance with ASC 460-10, “Guarantees”, a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. The Company did not receive any consideration for the guarantee and has determined the indemnification fair value to be insignificant. As of June 30, 2011, the Company has not recorded any liabilities under these guarantees.
 
 (d) Unused available line of credit
 
 The Company has a credit facility with Industrial Bank Co., Ltd totaling $4,537,342 (equivalent to RMB30 million), including short-term bank borrowings and bills payable, under which the Company may borrow on an unsecured and cross-guarantee basis in a term of 2 years, expiry in October 2012. As of June 30, 2011, the Company has the unused available line of credit totaling $1,522,047 on a cross-guarantee basis.
 
 
 NOTE 13 - SUBSEQUENT EVENTS
 
 In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after June 30, 2011 through the date of the condensed financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.


19
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
 FORWARD LOOKING STATEMENTS
 
 This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current expectations, estimates, forecasts and projections about us, our future performance and the industries in which we operate as well as our management’s assumptions and beliefs.  Statements that contain words like “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, or variations of such words and similar expressions are forward-looking statements.  In addition, any statements that refer to trends in our businesses, future financial results, and our liquidity and business plans are forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements.  There can be no assurance that forward-looking statements will be achieved, and actual results could differ materially from those expressed or implied by forward-looking statements.  Important factors that could cause actual results to differ materially include those discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.  We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, knowledge of economic and market factors and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.
 
 On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that the estimates, assumptions and judgments involved in revenue recognition, receivables and allowances for doubtful accounts, accruals, stock-based compensation, , inventories, deferred costs, income taxes, impairment of long-lived assets, and valuation and impairment of investments have the greatest potential impact on our condensed consolidated financial statements, so we consider these to be our critical accounting policies.
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
 For a description of the new accounting standards that affect us, see Note 4 of notes to our condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.
 
  20
  RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
 
 For the three months ended June 30,


For the six months ended June 30,2011


2010


2011


2010Revenues, net

$
5,806,130


$
7,611,445


$
10,844,058


$
12,880,324Cost of Revenue:

$
3,797,506


$
4,442,311


$
7,303,283


$
7,623,951Operating Expenses:

$
452,026


$
589,296


$
995,317


$
1,150,350Income from Operations:

$
1,556,598


$
2,579,838


$
2,545,458


$
4,106,023Interest Expenses:

$
116,258


$
330,417


$
198,285


$
657,801Income Taxes:

$
375,108


$
670,864


$
631,772


$
1,063,755Net Income:

$
1,066,024


$
1,579,291


$
1,716,507


$
2,385,872Other Comprehensive Income:

$
685,095


$
7,444


$
938,862


$
156,008Total Comprehensive Income:

$
1,751,119


$
1,586,735


$
2,655,369


$
2,541,880
 
 Revenues
 
 We generated net revenues of $5,806,130and $10,844,058for the three and six months ended June 30, 2011, respectively, compared to net revenues of $7,611,445and $12,880,324 for the same periods ended June 30, 2010, respectively. The decreases in sales revenues by $1,805,315 and 2,036,266 in the second quarter and first six months of 2011 respectively, compared to the same periods in 2010, were due primarily to the decline in sales of our décor paper.
 
 In 2011 and beyond, after the commencement of our new production line for laminated boards which is expected to be completed in the fourth quarter of 2011, we expect that our net sale revenues will grow steadily from fourth quarter of 2011 due to our core production switching from the decor paper to laminated board, which we believe is considerably more profitable.
 
 Cost of Revenue
 
 Cost of revenue primarily includes cost of supplies to manufacture our décor paper. We had $3,797,506and $4,442,311in cost of revenue, or 65.4% and 58.4% of revenues, during the three months ended June 30, 2011 and 2010, respectively. The cost of revenue as a percentage of revenues increased during the second quarter of 2011 mainly due to increase in purchase price of raw materials, ink and paper.
 
 During the six months ended June 30, 2011 and 2010, we had $7,303,283and $7,623,951in cost of revenue, or 67.3% and 59.2% of revenues, respectively. The cost of revenue as a percentage of revenues increased due to due to increase in purchase price of raw materials, ink and paper.
 
 Operating Expenses
 
 The following table summarizes our operating expenses:
 Three months ended June 30,


Six months ended June 30,2011


% of net sales


2010


% of net sales


2011


% of net sales


2010


% of net sales(in thousands)


(in thousands)Sales and marketing

$
228.96



4.0
%

$
321.82



4.2
%

$
524.76



4.9
%

$
606.03



4.7
%General and Administrative


223.07



3.8
%


267.48



3.5
%


470.56



4.3
%


544.32



4.2
%Total net operating expenses

$
452.03



7.8
%

$
589.30



7.7
%

$
995.32



9.2
%

$
1,150.35



8.9
%
 
  21
  
 We had operating expenses of $452,026and $995,317for the three and six months ended June 30, 2011, respectively, compared to the operating expenses of $589,296and $1,150,350for the same periods ended June 30, 2010, respectively. The slightly decrease in operating expenses during the second quarter of 2011 was primary due to decrease in sales and marketing expenses, which was decrease in line with decline in sales. The decrease in operating expenses during the six months ended June 30, 2011 was due primarily to decrease in sales and marketing expenses, which was decrease in line with decline in sales and a consulting fee of $62,766 incurred in the first quarter of 2010 in connection with investor relationship but not such expense was incurred in the same period in 2011.
 
 Interest Expense
 
 We had interest expenses of $116,258and $198,285 for the three and six months ended June 30, 2011, respectively, compared to the interest expenses of $330,417and $657,801for the same periods ended June 30, 2010, respectively. The significant decrease in interest expenses was primary due to amortization of debt discount arising from convertible notes payable in the first and second quarter of 2010, but no such amortization was incurred in the same periods of 2011.
 
 Income Tax Expense
 
 We had income taxes of $375,108and $631,772for the three and six months ended June 30, 2011, respectively, compared to the income taxes of $670,864and $1,063,755 for the same periods ended June 30, 2010, respectively. The decrease in income tax expense in the second quarter compared and first six months of 2011, as compared with the same periods of 2010 was primarily due to decrease an in taxable income.
 
 Net Income
 
 We generated net income of $1,066,024and $1,716,507for the three and six months ended June 30, 2011, respectively, compared to the net income of $1,579,291and $2,385,872for the same periods ended June 30, 2010, respectively.
 
 The decrease in net income in the second quarter and first six months of 2011 compared to the same periods in 2010 was due primarily due to a decline in income from operations, which was caused by a decline in our sales of our décor paper and an increasein our cost of revenue in the first quarter and first six months of 2011 compared to the same periods of 2010.
 
 
 Liquidity and Capital Resources
 
 Balance Sheet and Cash Flows
 
 Cash flows provided by operating activities were $3,873,856and $3,885,634 for the six months ended June 30, 2011 and 2010, respectively. Positive cash flows from operations for the six months ended June 30, 2011 resulted primarily from our net income of $1,716,507, an increase in advances to suppliers, accounts payable, accrued liabilities and other payables by $491,923, $1,670,569 and $190,010, respectively, partially offset by increases in accounts receivable and inventories of $1,478,600 and $62,806 respectively, plus a decrease in income tax payable by $13,559. Positive cash flows from operations for the six months ended June 30, 2010 resulted primarily from our net income of $2,385,872, an increase in advances to suppliers, accounts payable, income tax payable and accrued liabilities of $158,646, $364,749, $150,203, $402,415 respectively, a decrease in deposits and prepayments by $138,493, partially offset by the increases in accounts receivable and inventories by $259,270 and $578,831 respectively.
  22
  
 Cash flows used in investing activities were $3,289,280and $3,518,243for the six months ended June 30, 2011 and 2010, respectively. The cash flows used in investments for the six months ended June 30, 2011 was due to the payments of $809,209to acquire plant and equipment and $2,480,071to construction in progress. The cash flows used in investments for the six months ended June 30, 2010 was primary due to the payment of $1,150,512to acquire plant and equipment and $ 2,367,731to construction in progress.
 
 Cash flows used in financing activities were $832,574and $577,988 during the six months ended June 30, 2011 and 2010, respectively. Cash outflows during the six months ended June 30, 2011 were due primarily toan increase in restricted cash of $763,569, the payments on convertible notes and bank borrowings of $186,517 and 72,368 respectively, offset by an advance from a related party of $189,880. Cash outflows during the six months ended June 30, 2010 were due primarily to the proceeds from bank borrowing $1,024,179, offset by payments on bank borrowings of $1,287,261 and repayment to a related party of $314,906.
 
 Liquidity
 
 We project that we will need additional capital to fund operations over the next 6 months. We anticipate we will need an additional $2,000,000 per year in 2011 and 2012.
 
 Overall, we have funded our cash needs from inception through June 30, 2011 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.
 
 We had cash of $746,543 on hand as of June 30, 2011.Currently, we have enough cash to fund our operations for about six months. This is based on an assumed continuation of our current cash flows from operating activities and financing activities, positive working capital and projected revenues and a favorable outcome of our ongoing negotiations with the holders of our outstanding convertible notes which have matured.   However, if our actual revenues fall short of needed capital or we are unable to resolve our negotiations with our note holders with either a conversion into shares or extension of the terms of the convertible notes, we may not be able to sustain our capital needs. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $2,000,000 per year starting in 2011. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us.
 
 On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, additional infusions of capital and debt financing. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected. Additionally, we will have to significantly modify our business plan.
 
 Demand for products and services will depend on, among other things, market acceptance of our products, the décor paper market and laminated board market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.
  23
  
 
 Off-balance sheet arrangements
 
 At June 30, 2011, we had no off-balance sheet arrangements.
 
 Contractual obligations and other commitments
 
 Our obligations under contractual obligations and commercial commitments at June 30, 2011 were as follows:
 
 Payments Due by PeriodTotal


Less than

1 year


1-3

years


3-5

years


More Than

5 yearsOperating leases

$
1,906,560


$
222,772


$
459,468


$
501,238


$
723,082Purchase commitments


200,000



200,000



-



-



-Total

$
2,106,560


$
422,772


$
459,468


$
501,238


$
723,082
 
 Operating leases
 
 We lease certain facilities under non-cancelable operating leases that expire at various dates beyond 2015.
 
 Purchase commitments
 
 The Company is committed under a number of agreements with independent contractors or suppliers in relation to the construction of the new manufacturing facility for the production of laminated boards. The construction is expected to be completed in the fourth quarter of 2011. As of June 30, 2011, the Company has aggregate contingent payments of approximately $0.2 million to the third party contractors and equipment vendors in the next twelve months.
  24
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not applicable.
 
 
 ITEM 4. CONTROLS AND PROCEDURES.
 
 (a)           Evaluation of disclosure controls and procedures.
 
 Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
 Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, as appropriate to allow timely decisions regarding required disclosure.
 
 (b)           Changes in internal control over financial reporting.
 
 There were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
  25
  PART II. OTHER INFORMATION
 
 ITEM 1.      LEGAL PROCEEDINGS
 
 The Company previously reported a lawsuit filed against the Company and its subsidiary CHDITN on or about January 5, 2011 by Greentree Financial Group Inc. (“Greentree”) in the Circuit Court of Broward County, Florida, Case No. 11-000245-09, seeking repayment of the principal of a $140,000 promissory note plus unpaid interest, late charges, attorneys’ fees and court costs.  There have been no material developments involving this litigation.
 
 ITEM 1A. RISK FACTORS
 
 In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2010. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 None.
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
 Two convertible notes issued by the Company with a principal amount of $2,340,000 matured and became due on November 10, 2010.  We are currently negotiating with the holders of these notes, including a possible conversion of the notes into shares of stock or extension of the terms of the convertible notes.
 
 ITEM 4. REMOVED AND RESERVED
 
 None.
 
 ITEM 5. OTHER INFORMATION
 
 None.
 
 ITEM 6. EXHIBITS
 
 31.1
Certification of Chief Executive Officer31.2
Certification of Chief Financial Officer32.1
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.32.2
Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
 
 101.INS
XBRL Instance Document *101.SCH
XBRL Schema Document *101.CAL
XBRL Calculation Linkbase Document *101.DEF
XBRL Definition Linkbase Document *101.LAB
XBRL Label Linkbase Document *101.PRE
XBRL Presentation Linkbase Document *
  
 o be filed by amendment
  26
  
 SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 
 
 DÉCOR PRODUCTS INTERNATIONAL, INC.Date: August 22, 2011
By:
/s/ Rui Sheng LiuRui Sheng Liu

President and Chief Executive Officer
 
           27
    INDEX TO EXHIBITS
 
 Exhibit No.

Description31.1

Certification of Chief Executive Officer31.2

Certification of Chief Financial Officer32.1

Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.32.2

Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
 101.INS

XBRL Instance Document *101.SCH

XBRL Schema Document *101.CAL

XBRL Calculation Linkbase Document *101.DEF

XBRL Definition Linkbase Document *101.LAB

XBRL Label Linkbase Document *101.PRE

XBRL Presentation Linkbase Document *
  
 o be filed by amendment